A few facts about Social Security: in 2013 the Social Security Administration covered 37 million retired workers and paid over $47 billion in benefits. The average monthly benefit received by workers was $1,269, which made up about 39% of the income of the typical benefit recipient.
Determining the best time to file for Social Security Retirement benefits is one of the most important decisions you’ll make as the time for retirement approaches. One thing is certain: no rule of thumb or one-size-fits-all answer is appropriate. Each individual’s situation deserves careful consideration and planning.
Start your planning process by accessing the vast resources offered by the Social Security Administration’s website, www.SSA.gov. The Administration recently expanded the tools and information contained on the website and it is now the best resource available for learning about the program in general and individual benefits specifically. The following are a few of the best tools on the website:
Estimate future benefits
Download Social Security statements
Apply to start receiving benefits
One of the first steps one must take is determining full retirement age (FRA). A worker’s FRA is the age at which benefits can be claimed without early-filing penalties and without adjustments due to earned income. The following chart depicts the FRA for workers:
Year of Birth* | Full Retirement Age |
| 1937 or earlier | 65 |
| 1938 | 65 and 2 months |
| 1939 | 65 and 4 months |
| 1940 | 65 and 6 months |
| 1941 | 65 and 8 months |
| 1942 | 65 and 10 months |
| 1943–1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 and later | 67 |
The earliest age at which Social Security benefits may be claimed is age 62 for all qualified workers; however, claiming benefits before reaching full retirement age can result in significant reductions in benefits. If benefits are claimed at age 62, retirement benefits are reduced permanently by approximately 30%. At 63, the reduction is about 25%. At 64, 20%. For those whose FRA is above 65, the following reductions apply: at 65, 13.3% and at 66, 6.7%. It is critical to understand that claiming benefits early is not a decision to be made lightly. All other options should be considered, including continuing to work, seeking part-time employment, or starting retirement income from investments or pensions instead of claiming Social Security benefits. Only after all these options are considered should a decision be made to claim benefits early.
Workers who decide to claim Social Security benefits early must be aware of the earnings test. The Social Security Administration allows beneficiaries to earn a certain amount of income each year without their benefits being subject to reductions. In 2014, the earnings limit is $15,480. Earnings above this threshold will be reduced according to the following rules:
For those who are under FRA for the entire year, a $1 for every $2 reduction in benefits occurs on earning about the limit ($15,480)
For those who reach FRA during the year, a $1 for every $3 reduction in benefits occurs on earnings above $41,400 until the month of full retirement age is reached.
At full retirement age, the reductions in benefits no longer apply and workers may earn any amount without being subject to any reductions.
Those considering retirement in the near future should also be aware of the specialized strategies available to help individuals and families maximize their benefits. While these strategies are beyond the scope of this blog post, we encourage workers nearing retirement to start learning as much as possible about their benefits. Social Security planning is one area of financial planning in which self-education and working with qualified professionals can make a very impactful, long-term difference. We’d be happy to help you navigate the Social Security Administration’s website as you start your exploration process.